Microcap Market Report: May 27, 2013 – For the first time in what feels like an eternity, in reality it is a mere four weeks, U.S. stocks, including microcaps closed lower. Amid ample speculation that the Federal Reserve is mulling either winding down or bring an outright halt to its asset-buying activities known as Quantitative Easing III, stocks sagged with the S&P 500 losing almost 1.1% on the week.
The NASDAQ Composite lost more than 1.1% while the Dow Jones Industrial Average, which eked out a small gain on Friday, closed lower by 0.33%.
Markets rocked by more than the Fed
Unfortunately, it was not just the Fed that roiled markets. On Thursday, the HSBC flash reading of China’s PMI for May disappointed, showing a reading below 50 and that indicates contraction. That prompted a plunge in Japanese stocks, Asia’s best performers this year, which resulted in the worst one-day performance for equities there in more than two years. That volatility trickled over to the U.S. and provided a rocky last two days of the week for global markets.
Microcaps hanging in there
In good news, microcaps proved somewhat durable as the iShares Russell Microcap Index Fund (NYSE: IWC) lost just 0.54% for the week. The Guggenheim Wilshire Micro-Cap ETF (NYSE: WMCR) was slightly better with a loss of 0.4%.
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All good things must come to an end
Green numbers four weeks in a row were pretty sweet, but we all knew it couldn’t last forever. The “Sell in May and Go Away” crowd could have the last laugh…but they better hurry.
I hope you were protecting your profits with some intelligent stop-losses. Investopedia had a good perspective on the subject: A stop-loss order is a simple tool, yet so many investors fail to use it. Whether to prevent excessive losses or to lock in profits, nearly all investing styles can benefit from this trade. Think of a stop loss as an insurance policy: you hope you never have to use it, but it’s good to know you have the protection should you need it. Let’s hope you don’t need them any time soon, but for the more volatile microcaps, they can be a profit saver.
Oil prices backed up slightly this week…but gold reversed its direction and made a nice move to the upside
WTI Crude Oil closed at $94.15 on Friday…off $1.87.
Gold stopped the slide and gained $21.90 to close the week at $1,386.80.
The US Dollar was off – losing $0.0058 to close at 0.7732 euros.
Here’s a familiar refrain…Bonds were down again – The 10-year bond lost $0.54 to close at $97.66 and the 30-year bond lost $0.16 to close at $94.25.
The U.S. Labor Department said initial claims for jobless benefits fell by 23,000 to 340,000 last week. Economists expected a reading of 345,000 new claims. The less volatile four-week moving average for May fell to 339,500 from 362,000.
The Commerce Department said new home sales rose 2.3% last month to a seasonally adjusted annual rate of 454,000 units. The median sales price rose 8.3%.
Last week was fairly light on marquee economic data points, but next week will offer up some more exciting fare even though U.S. markets are closed Monday in observance of the Memorial Day holiday.
On Tuesday, the S&P Case-Shiller Home Price Index data will be delivered along with consumer confidence data. Thursday brings pending home sales index data and jobless claims followed by consumer sentiment on Friday. For a four-day week, it should be an eventful one.
The Bottom Line for Stocks
What may be next week’s most pivotal economic event will happen while many Americans are prepping for Memorial Day barbeques and a welcomed day-off. That is to say the Bank of Japan meets Sunday. As we mentioned earlier, last week was not a good week for Japanese stocks and that resulted in a bad week for U.S. stocks because both markets are taking some cues from price action in the dollar-yen market.
That scenario, which will linger for the foreseeable futures, means investors are best-served by playing micro-cap sectors that are not affected by global headlines. Enter health care, biotech and select technology names…three of our ongoing favorites this year. Some of the wind is starting to come out of the consumer staples and utilities trades, but discretionary is another sector that currently looks strong at the micro-cap level.
Speaking of technology stocks…I think you’ll like our discussion of Brekford Corp. (OTCBB: BFDI).
Research and Editorial Staff
Mike Casson, Executive Editor